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CIMA JOT Case Study K49B report

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Toy Story - analysis of the Jot case study

Adrian Sims of BPP Professional Education provides some initial analysis of the pre-seen material for the

TOPCIMA Part B – Case Study exams on February 28 th and May 24 th 2012.

I’m writing this article in late December 2011 to help candidates prepare for the March and May 2012 T4

(TOPCIMA) exams based on the pre-seen material for Jot- toy case. Some previous T4 cases have lacked

fun, but toys are fun. I’m sorry, but I decided to combine this article with quotes from the three Toy Story

movies (Disney/Pixar). The Toy Story quotes are in italics, a bit contrived, and probably of no use for the

exam. They made me smile and gave me (and you) an excuse to watch the Toy Story movies again.

But my newspaper today rather kills the joyful mood. It has the headline ‘Sales boom may not save High

Street big names: analysts predict failures within days’. It reports that the December sales boom has been

insufficient and has left many stores with unsold stocks and unable to pay their outgoings. This has afflicted

markets as diverse as camping equipment and lingerie.

This brings us to the heart of the Jot pre-seen material. Jot makes toys and is part of an industry for which

November and December sales are critical. It depends on retailers to sell its products, but retail in Europe is

facing terrible times as a consequence of the recession caused by the sharp reductions in government

spending and collapse of bank lending. It has a perilous cash flow position such that at December 2011 it is

owed €4.065m by retailers – representing 76% of its capital base (€4,065k/€5,378k) with a further €542k in

unsold inventory (10% of total assets). You will be taking the examination in March or May. You are a

specialist in financial management. You will be expected to give advice to management to ensure that it

survives beyond December 2012.

Remember what the T4 exam seeks to assess

Buzz Lightyear’s cry of ‘To infinity and beyond’ led him to crash to the floor because he was trying to do too

much. He couldn’t fly. Reading the CIMAsphere posts during 2011 it looks as if a lot of candidates are still

being encouraged to try to fly, by approaching the T4 exam with a strategic mindset rather than a

management accounting mindset. Let’s not try to fly to infinity in our speculations otherwise your examiner

might conclude ‘that wasn't flying! That was falling...with style!’ and fail you.

The T4 – Part B Case Study exam is a Test of Professional Competence in Management Accounting. It is a

management accounting examination, not a second Business Strategy exam. Your role in the exam room will

be that of a management accountant reporting to Tani Grun, the Finance and IT Director. The examiner will

instruct you to conduct management accounting tasks for Tani Grun and/or the Board of Jot.

The four exams in 2011 did not involve complex questions on acquisitions, overseas expansion, or changes to

mission. They involved dealing with late-running projects, meeting emissions targets, assessing investment

proposals from financial and non-financial viewpoints and providing recommendations, and the short-term

financial and non-financial impacts of other business choices.

The balance you have to strike is to deal with these management accounting and financial management

problems in a robust, technical way, drawing on the knowledge you have gained from throughout your CIMA

studies. There will be numbers to do, and formal management accounting concepts to deal with. But put them

in their broader context by referring to their implications for the management of Jot and for its strategic

position.

I do anticipate that there may be a slightly more strategic element to the Jot exams than there was in the

exams in 2011. Jot is a small firm, and this means that management accountants will be expected to make a

bigger contribution to the decisions of the business than would be the case where the management

accountant works as a team leader dealing with month ends in a large firm like the ones featured in the preseen

material for the 2011 exams. Also we are told that Tani Grun ‘is finding the role more challenging’ (page

11) and so may be willing to delegate more to you, a member of her finance team.

This article will stay rooted in the management accounting/financial management aspects of the pre-seen

material for Jot, and bring in the strategic issues towards the end. I think this is the right way to see this case.

The T4 assessment matrix and passing the exam

The case study material is provided in two documents. The pre-seen material has already been posted on the

CIMA website and is relevant to both the March and May exams (please note, the ‘March exam’ is actually on

February 28 th this year). The second part is the unseen material and it progresses the story from the pre-seen.

It will be given to you on your exam day as the second half of a booklet that contains the pre-seen, the exam

equirement, and also mathematical tables and key formulae. This unseen material is different between the

March and May exam and the May exam does not use any of the information from the March unseen material.

Passing the exam requires you to deal professionally with the issues in the unseen material. In recent exams

the unseen has contained 6 issues. Most candidates attempt to deal with 4 of them in detail. This article

suggests some potential sorts of issues you may face concerning Jot.

Your script is marked against the Assessment Matrix on page 16 of the pre-seen material (and also in the

exam booklet on exam day). Here is a quick guide to what each assessment criteria means and what marks

are awarded for.

Technical: this means application of relevant technical theory, mainly from the Enterprise pillar papers in the

CIMA qualification. A good SWOT analysis is always rewarded, but it must contain the issues from the unseen

material and not just some pre-learned points from the pre-seen material. Also valuable are the Ansoff matrix,

stakeholder map, model of motivation and so on if they are relevant to the issues you are analysing or

discussing.

Application: marks here are mainly for number work. It is vital that you do the numbers competently,

understand what your results mean, and employ them in your discussion of the issue and to support your

recommendations. Your competence as a management accountant is being assessed so you must do

numbers. A small number of the marks, say about 3, are available for applying the SWOT and other Technical

models to the issues.

Diversity: this means employing relevant toy industry and other real-world business examples to illustrate the

issues and support your recommendations

Focus: this mean ensuring you discuss the things that matter in the unseen, and that you do provide a full

analysis of each, rather than writing a report that skates around and doesn’t give sufficient detailed attention to

the key issues

Prioritisation: sifting through the 6 or so issues in the unseen to select the 4 you want to write about, and

then putting these in a rank order of importance to Jot. A good guide here is to recognise that problems are

things that must be dealt with, they are threats. Proposals are things that can be dealt with, they are

opportunities. Big threats should be given a higher priority than bit opportunities.

Judgement: assessing the weight of the issues and commenting on them. If they are threats describe their

impact and then outline alternative ways to resolve them. If they are opportunities assess their suitability,

acceptability, and feasibility. The key to good marks here is the depth of the points you make. Rather than say

‘this is a bad thing’ say ‘this is a bad thing because..’, and if you are considering an investment don’t just say

‘it has a positive NPV ‘ instead say ‘it has a positive NPV but also it is consistent with the goals of Jot and it

carries limited risks…’

Ethics: this is about noticing things that have a moral dimension, pointing this out, and recommending ways

that management can deal with the issue to best balance the moral and commercial considerations. This may

involve treatment of staff, infringement of legal rights, unsafe products and practices and so on. Having a

separate section in your report headed ‘Ethical Issues’ is a good idea. Usually 1 of the 6 issues in the unseen

is purely ethical and you can deal with this as a 5 th issue in addition to the 4 commercial issues you have

discussed. 1 or 2 ethical issues may be included as aspects of commercial opportunities, such as outsourcing

to a factory that is cheap but which exploits its workforce. Discuss the ethical aspect in the Ethics section of

your report, and the commercial aspects in another section.

Logic: up to 20 marks are awarded for recommendations on what to do about the 4 commercial issues. A

good approach is to tell management what they should do in a clear sentence or two. Then justify the

recommendation by telling them why you recommend this. Finally tell them how to set about doing it. The key

to good marks here is to ensure that your recommendations do follow from the analysis you made of the issue

in Judgement, but also that your recommendations are well-justified and supported with practical steps.

Rather than say ‘ the firm should change behaviour by using Lewin’s three step approach’ be practical and

say ‘ the first step in changing behaviour would be to make staff aware of the intentions of management. This

should be done by briefing team leaders and then commanding them to hold work place meetings’.

A further 10 marks under Logic is for a small requirement, called Section (b). This is to assess your ability to

communicate with non-accountants by taking one particular issue and summarising your analysis and

recommendations into a presentation, email, or short briefing document.

Integration: these marks are awarded on the basis of the overall helpfulness and professionalism of your

report. If you say nothing, or it doesn’t make much sense, you will be awarded only 0 or 1 mark under

Integration. But a report that flows has good number work, and that comes to sensible and clear

recommendations will get 4 or 5 marks.

I hope it’s clear that the bulk of the marks are given for the heart of the report – the numerical work and the

analysis of issues and the quality of recommendations. This is where Application marks (15), Judgement

marks (20), Logic marks (20) and marks for Focus and Integration (5+5) are awarded – 65 marks from a total

of 100. You cannot pass this exam without making a good attempt at the issues. Some candidates spend too

long trying to pick up Technical, Diversity and Ethics marks. But to pass people for doing just these things well

would be like awarding a restaurant Michelin stars based on the quality of the salt and pepper and the view

outside the window! Michelin stars are awarded for the food. T4 marks are awarded for the discussion of the

issues and the use of properly calculated numbers to support the discussion.

The need for industry knowledge

Candidates complain that the T4 pre-seen is never about their industry, and that if it were then they would

have more chance of passing. One such lady worked for a logistics firm and her role was accounting for the

containers loaned to supermarkets. I was delighted when ‘pallet woman’, as she became known, emailed me

to say she passed in November in a case involving…supermarkets.

But unless you work in toy manufacture already you will need to do some adjusting. ‘But we are not on my

planet – are we?’

Jot is not a real world firm, but the industry it exists in is real enough and you need to do some research and

understand it to the same level as you understand the industry your employer is a part of. Between now and

the exam it’s a good idea to assume that you also work in the toy industry. It may not be your home planet, but

you will need to live there until the exam.

Even if Jot was a real firm it wouldn’t have appeared in the Toy Story movie. The toys in those movies were

‘placed’ by large global firms like Mattel (Barbie and Ken and Rex), Hasbro/Playskool (Mr Potato Head),

James Industries (Slinky Dog), Texas Instruments (Mr Spell), and Ohio Art Company (Etch). Once the first

Toy Story film had been successful these established toys enjoyed renewed popularity. As for the toys created

specifically for the film, such as Buzz Lightyear, Woody, and Hamm – they were licensed out for other firms to

make, notably by Thinkway Toys who secured the worldwide rights in 1995.

The real world toy industry is dominated by a few large players, but in fact nearly 60% of European toy sales

are the products of firms that employ less than 50 people. These smaller firms, like Jot, survive by being

distinctive. As Rex explains ‘I'm from Mattel. Well, I'm not really from Mattel, I'm actually from a smaller

company that was purchased by Mattel in a leveraged buyout’. But a green plastic dinosaur (with issues) is

hardly innovative so it and the firm that made it were swallowed up in one of the lovely in-jokes in Toy Story

(dinosaur…survival….get it?).

But another reason Jot would not be in the film is that, despite its being a landmark film in the history of

computer animated graphics, the toys in Toy Story are generally un-animated. The film was made in 1995

when Nintendo hand helds were the main games consoles. But there are no video games in the film outside of

Pizza Planet. The toys are mainly plastic figures and push-along toys and they are quickly swept aside by

Andy when Buzz Lightyear comes on the scene because he has electronic circuits and he does stuff!

Jot makes toys that are electronic, animatronic, and, in many cases, educational (page 3). It is a focus

differentiated player in the market (Porter’s 3 generic strategies). Real world producers in Jot’s market

segment include VTech and Lexibook, although some mainstream toy firms like Chad Valley have ranges of

animatronic toys too. The range of toys includes hand held game boxes with educational and gaming content

which seems to have something in common with Nintendo DS. But the list does not seem to include additional

software for the game boxes, nor does it design and manufacture more ambitious gaming solutions like

Nintendo Wii, Play Station, and X-Box 360. These are real-world examples and references of the sort you will

need to research before you take the exam.

Getting to grips with the pre-seen material

The Strategic level exams use a common pre-seen case study to set the scene. Your experience in passing

those exams is a helpful introduction to T4. But the pre-seen for T4 is much more focused and must be used

more intensively as part of your pre-exam preparation. But ‘Sheriff, this is no time to panic!’

The pre-seen for Jot is reasonably straight-forward.

Jot’s operational position is described as follows:

Jot is a small business with €9.9m turnover in 2011 (page 12), but which grew by almost 18% in the year

to December 31 st 2011 (page 4);

It produces for two market segments: 3-5 year olds and 5-8 year olds;

Its product portfolio is a mixture of in-house designed electronic toys, and toys produced under license

from other firms (page 3);

At 31 st December 2011 Jot has significant capital shortages. It has only €540k left of its line of credit from

its bank (€1,500k-€960k – page 4);

Jot is expecting a replenishment of its cash position by March. It made €5,008k of sales in Quarter 4 of

2011 (page 14) and this has led to it holding €4,065k of trade receivables at year end (page 12). Given

that it takes customers between 30 and, for some more than 60 days, to pay (page 7) it should receive

this money by March 2012. This assumes that none of its retail customers have gone, or will go into,

administration during the poor sales season of Christmas 2011 referred to at the start of this article;

It launches 5 ‘totally new’ products per year and spends €1.2m on design and development (page 5). New

products are essential to its profitability and growth;

The design for its 2012 range has been finalised and prototypes will be shown at trade fairs between

January and March 2012 (page 5). Final production decisions and orders are due to be placed by the end

of May 2012 (page 6) for manufacture between June and early November 2012;

All its products are made in China by 20 different outsourced manufacturing companies (pages 5 and 6);

It maintains its own warehouses (page 7) but does do some direct sales from factory to large retailers too

(page 6);

Jot seems to have significant foreign exchange exposure. The pre-seen does not state the currencies it

prices its toys in, nor the currency in which it pays its Chinese manufacturers and shippers. However page

7 shows it sells to Eurozone countries (40% of total), non-Eurozone (29%), USA (23%) and the remaining

8% from various other countries. Changes in exchange rates will affect the Euro value of its sales

revenue, the gross margin it achieves on sales and, in extreme cases, its ability to pay its overseas

suppliers for the toys and license rights.

Jot’s strategic position is described in the following terms:

‘Jot is a young, growing company which is dependent on loan finance’(page 4)

Jon Grun was inspired to start Jot 13 years ago to exploit ‘a gap in the market for innovative, educational

toys’ (page 11)

‘The Jot brand name is synonymous with quality electronic toys’ (page 9) and the inclusion of electronics

in its toys is seen as one of its strengths (page 3)

‘Jot’s sales are heavily dependent on seven large retailers…for over 68% of sales...[these are] based in

Europe and the USA’ (page 8)

Jot would like to expand its sales by specifically targeting other areas of the world, including the Russian

and Asian markets (page 10)

Jot has aspirations to improve its Corporate Social Responsibility (CSR) credentials during 2012 (page

10) which implies concerns will extend beyond product safety to include also working conditions in

Chinese factories, the materials from which toys and packaging are made, carbon emissions, and the

social impact of the toys themselves

There is ‘a current trend in toy sales...towards electronic toys and computer assisted learning’ (page 2)

Jot has ambitious growth plans that seek to increase revenues by 95% over 5 years (1-

€19,260k/€9,866k), sales volumes by 99% (1- 1,405.0k/706.3k) and operating profits by 145% (1-

€1,348k/€551k). This is to be achieved by increasing the number of countries it sells to, and doubling the

number of new products it launches each year from 5 to 10 a year by 2016 (page 15)

The timing of the exams

The plastic aliens in Toy Story thought the random grabbing of the mechanical claw of an arcade machine

was actually divine selection ‘The claw chooses who will go and who will stay’. I’m not sure how you see the

T4 exam. But it is not random, and some clues on what you will need to do can be derived from the content of

the pre-seen and the timing of the two exams.

There will be two exams based on this Jot pre-seen: February 28 th (the so-called March exam) and May 24 th .

The exams are sat in real time. This means that the pre-seen information takes the story up to 31 st December

2011, and then 2 months will have elapsed by the time of the first exam, and 5 months will have elapsed by

the time of the May exam.

Consider where Jot will be in its annual cycle on February 28 th 2012 and the issues and decisions it will face.

It will know the outcome of many of the trade fairs ‘held in several locations in the January to March period of

each year’– i.e. the first 2 months of the year – and the ‘make or break reaction’ to its products (page 9) in an

industry where ‘the level of sales achieved by many toy companies will often depend on orders generated

from buyers attending these international toy fairs’ (page 2). This suggests that you might be asked to provide

a financial forecast for the year, or perhaps update the 2012 column of the 5 year plan in Appendix 5. By

February 28 th management would also be aware of any default in payments from struggling retailers, any

write-down to inventory values (page 8), and the outcome of the auditing of its accounts. As a management

accountant you might be asked to deal with these. It will also be budgeting for the research and development

work due to commence from May 2012 (page 5) and which, this year, is supposed to create 6 new toys rather

than 5 (page 15).

By May 24 th the issues facing Jot, and therefore you in the exam room, will be different. We are told ‘key

customers place their main orders in May or June each year and sometimes earlier’ (page 8) and this leads

Jot to select suppliers and place orders with them.

This again may lead to a requirement to update 2012 forecasts in the May exam. Also May candidates might

be asked to advise on the ‘difficult decision to when placing orders with outsourced manufacturers, between

ordering too much inventory and not selling it and the opposite of losing sales because of lack of inventory’

(page 8 – this is mentioned twice on the same page which suggests the examiner wants you to notice it).

This would also be the point at which supplier selection takes place. We are told that Michael Werner uses a

tender process and appoints them ‘by the end of May’ (page 6) and is mainly guided by price. But there may

be other issues to consider such as whether a supplier can offer Just In Time production to help Jot manage

its inventory risks, potential Corporate Social Responsibility (CSR) considerations, and perhaps the benefits of

‘near-shoring’ (page 6).

Operational issues facing Jot

You now you have a taste of the sorts of ways the examiner may ‘spin’ the pre-seen into a final exam. I don’t

have any inside line that tells me what the real questions will be. I have explained the thinking of the T4 exam

and you know what you are likely to be up against. ‘Great! Now I have guilt!’

But here are a few of my speculations with some ideas on how they might be examined and how I would

approach them.

Issue 1 – improving working capital management

My reading of this pre-seen is that Jot has working capital management issues that, if not addressed, will

harm its short term performance, even its ability to survive, and will make it impossible for it to achieve its 5

year plan targets.

Page 4 tells us that its bank will not provide additional long-term finance to Jot and that at December 31 st 2011

Jot had used €960k of its maximum €1,500k overdraft facility. This means that it has €540k spare. According

to its 5 year plan Jot’s working capital needs will increase during 2012 due to three factors:

The planned increase in sales. Between 2010 and 2011 sales rose by €1,495m, from €8,371k to €9,866k.

The Statement of Cash Flows on page 13 shows that during 2011 Jot increased its overdraft by €170k to

help finance the €421k rise in working capital its needed to sustain its rise in revenues. Page 15 shows

that Jot plans to increase revenues by €1,702k (€11,568k -€9,866k). Given that it took €421k extra

working capital to finance €1,495k of sales this implies a ratio of 28% so, by extension, a rise in revenues

in 2012 of €1,702k could require €477k extra working capital to support it (€1,702 x 28%). However these

calculations assume that Jot’s customers continue to pay within the same timescales as they currently

do;;

Potential extension in the time retailers take to pay. In the present credit crunch banks won’t lend more to

Jot. They will be unwilling to lend more to retailers too. This means that in 2012 some retailers may try to

extend the credit they take from Jot even further than they did in 2011. This will cause more strain on Jot’s

working capital position;

The planned increase in new products. The five year plan states that 6 new products will be launched in

2012, and 7 in 2013. Page 5 explains that Jot has paid all the research and development costs of its new

products for 2012 during 2011. It also states that development costs are ‘between €0.1m and €0.25m for

each’. Therefore the need to research 7 rather than 6 new products during 2012 will require additional

capital up to €250k, nearly half of the €540k remaining from its overdraft limit.

This suggests that working capital may be a constraint during 2012. It will certainly become an issue if Jot tries

to achieve the growth in revenues, new products, and geographical markets set out in its 5 year plan.

Be prepared to make recommendations on how Jot could improve its management of working capital and,

thereby, finance its planned growth. You might consider:

Better debtor control which, according to page 7, Jot does not ‘chase …too aggressively’;

Extend the credit taken from suppliers. However it may be difficult for a small firm like Jot to exert power

over the Chinese manufacturers to demand this;

Better inventory management. Although at year end Jot holds relatively little inventory this is just a

snapshot following its busiest sales period. From June to early November it would be building inventory as

deliveries come from manufacturers (page 6). This will absorb working capital. A shift to shorter supply

lead times, such as by near-shoring, or favouring suppliers with flexible manufacturing systems (FMS)

able to produce small batches in a swift and cost-effective manner would help reduce this problem as well

as limiting the amount of unsold inventory that needs to be disposed of at ‘substantially reduced prices’

each January (page 8).

Jot really needs to have business in the first half of the year because during the months from January to June

it will have warehouses with little stock, and very little business activity (page 14). In the same way as,

allegedly, the producers of refrigerated meat products sought to diversify into soft drinks and ice cream to get

use from their depots and trucks during the summer months. It could consider taking on garden furniture

products or, as real world Hong Kong toy firm Kader Holdings did, washing up bowls and household plastic

wear.

Jot is a private company with just 5 close shareholders (page 4). It raised, at most, only €130k from the sale of

its shares (€40k + €90k) and as a consequence has been depending on bank lending and retained earnings

to finance its growth. The bank is refusing to lend it more. We are also told that the shareholders have not

received any dividend from their holdings ‘to date’ (page 4) and will not be able to receive any over the coming

5 years due to the need for Jot to conserve cash to finance its growth. Several of the Directors purchased their

shares and so will be expecting a return.

An alternative approach would be to attract additional finance from different sources.

One source might be debt factoring. This is a type of financing method in which Jot would sell its accounts

receivable at a discount. The company purchasing the accounts receivable, usually a division of a bank or

other finance house, is known as a factor. The factor then collects the outstanding amounts from the

businesses customers. This has the benefit of releasing cash quickly for Jot and improving cash flow

generally. It also spares itself the costs of debt chasing, legal actions for recovery and so on. The discount,

say €3 per €100 of debts, represents the profit to the factor and the cost of the finance to Jot (€3/€100 = 3%).

This could be compared to the interest it pays on overdraft finance (12% page 4), however it should be

remembered that Jot would not expect to be owed the money for an entire year. So if debts are normally paid

within 90 days, say, then the overdraft interest rate would be 2.95% (90/365 x 12%) which is more favourable

than 3% from the factor in this example. However with no further overdraft available beyond €1,500k Jot may

have no choice but to turn to debt factoring. The problem is that this might reduce the operating margins of

Jot, which are presently 5.6% (Appendix 5) and Jot may not be able to increase them as forecast in the 5 year

plan.

You might advise Jot to seek venture capital backing. It has a successful track record and its 5 year plan

seeks to increase operating profits by 145% in 5 years. If it can buy shares at the right price, this is likely to

be very attractive to a venture capitalist. And it would provide a way for some shareholders to get some of

their investment back now, by selling shares to the venture capitalist, as well as an eventual exit route for all

shareholders if Jot were to become quoted after 2016, or sold on to another firm.

If the examiner sets a task for you to advise the Board of Jot on venture capital financing you would need to

assess whether the price the venture capitalist was offering was adequate, and also warn them of the

potential for loss of control over their business if the venture capitalist puts a representative on the Board, and

the risk that the venture capitalist will ratchet up their shareholding to compensate for any underperformance

against the targets in the 5 year plan.

You should also note that three Directors do not have shares in Jot (page 11). Any issue of new shares could

provoke jealousy and disagreement from those left out or, if they are included, from existing shareholders who

fear dilution of earnings.

Issue 2 – deciding how much to make

‘And this is the Buzz Lightyear aisle. Back in 1995, short-sighted retailers did not order enough dolls to meet

demand.’ (This line is from Toy Story 2 and another in-joke given that Toy Story 1 was released in 1995. Also

the line is spoken by Barbie whose makers, Mattel, had refused to endorse her appearance in Toy Story 1).

The pre-seen repeats the point that sales are seasonal and uncertain, but that Jot needs to decide in May the

quantities of each product line it requires for its 4 th quarter sales. This is likely to be a very difficult thing for Jot

to get right. It will involve balancing considerations such as:

Getting a low unit price by ordering one large run versus the risk of being left with unsold stock at the end

of the season;

Saving working capital by ordering periodically in small amounts versus the higher total costs involved in

buying numerous smaller runs;

The extra costs of over ordering and holding excess inventory versus the revenue lost from not having

sufficient supplies of a popular toy.

Until firm orders arrive in May it will only have indicative expressions of interest from enquiries at the trade

shows in Quarter 1. This will particularly affect the 6 new products it is launching.

Where it is licensing in products ties to films and entertainment, such as plastic figures and vehicles based on

the most recently re-launched Marvel Comics character, it takes a risk on the film being a box office hit. In

2000 real world publisher Dorling Kindersley had to be rescued, at a bargain price, by Pearson group after it

sold only 3m of the 13m Star Wars books it had printed to tie-in with the first of the prequel Star Wars films

which had disappointing box office sales.

Jot may have some ‘cash cow’ toys that have sold well for many years. But the trend that is favouring

interactive electronic toys may be reducing the sales of these earlier toys. Also the films or characters they are

based on may be in the decline stage of their own life cycle. Firms like Lego freshen up its 1949 building block

toys by tying them into popular films like Harry Potter and Star Wars, and have diversified by taking its brand

into video games like Lego Star Wars.

The examiner has used probability-based forecasts in past T4 exams, and has featured calculations that ask

you to extrapolate trends across several years, such as a 5% annual reduction in sales volumes or prices. In

the March or May exam you could be presented with data on potential sales and be asked to recommend a

production volume, or forecast sales revenue. Be prepared to do the calculation requested using the data

provided, but then be ready to discuss the difficulties in relying on probabilities for one-off strategic decisions,

the fact that the expected value is not the value that will actually occur, the limitations of hunches and

guesses, and the possibility that a given product may lead to spin-off revenues from cross selling.

Issue 3 – supplier selection

At present all 20 of Jot’s suppliers are based in China. They tender to produce the toys and their packaging

each May/June and, from page 6, it seems that they assemble the products from components of known cost.

They are selected on unit price to achieve a target gross margin with some regard also given to meeting

timescales and product quality.

A number of issues come to mind that Jot might wish to consider:

Differences in non-production costs caused by suppliers. The pre-seen specifies gross margin as the key

factor in supplier selection. This is defined in a way that ignores the costs of transporting and storing the

product, the working capital used, and the flexibility to cope with changes in order quantity. A supplier that

quotes a low price but produces all the units in July would gain preference over one that charged a higher

price but offered a flexible solution that meant stock didn’t arrive until October, was delivered straight to

the retailers thus by-passing the warehouses, and allowed orders to be increased or reduced to avoid

stock-outs or unsold inventory. This recalls your earlier studies on Direct Product Profitability as a basis

for supplier selection.

Near-shoring versus China. China is no longer the dominant production location it once was. Studies have

shown rising labour costs, increased congestion in getting product through the ports, much higher

transport costs, and growing concern over ‘toxic toys’ where the paint used contains carcinogens or lead.

China also has a poor reputation for respecting the intellectual property rights of outside firms. Nearshoring

to North Africa, Mexico, Estonia, Hungary and other places would help Jot to develop a more

flexible, just-in-time, supply chain. Orders can be fulfilled and supplied in 4-6 weeks rather than 3 months

with consequent benefits for adjusting supply to demand and reducing inventory and transport costs.

Corporate Social Responsibility. ‘Idiots! Children destroy toys. You'll be ruined, forgotten, spending

eternity rotting on some landfill.’ Page 10 refers to Jot becoming concerned about CSR, although its

traditional focus has been on product safety. Real world firms like Hasbro have policies on product safety

(of materials used as well as how they perform in play), but also on manufacturing ethics (wages and

conditions in factories, life chances for workers, hiring practices), sustainability (such as carbon

emissions, packaging, inks used, materials used in manufacture of toys, end of life cycle salvage, and

transport footprint), and on the content and impact of the toys and games they sell (such as violence or

discriminatory stereotypes). If Michael Werner and Alana Lotz do develop a CSR policy for Jot in early

2012 then some of these could affect supplier selection decisions made in May/June 2012. The T4

examiner has examined sustainability extensively in recent exams.

Issue 4 – adding a product to the 2012 range

In the exam there could be a requirement to comment on whether to add a product to the range. The pre-seen

makes clear that although the toys for 2012 have been decided, there are probably no production models

available for the 6 new toys. They are prototypes (page 5). They will have to await the tenders from

manufacturers in May in order to know what the final cost of the production version will be. According to page

6 they will ‘have already decided on an indicative selling price’ and have a ‘planned gross margin’, and they

rely on the manufacturers to come in at a production price that will give this margin at the indicative selling

price.

This looks a little like target costing, where instead of basing prices on costs, the firm bases costs on price.

Management estimates what the product must to sell for in order to achieve a target level of sales, sets a

gross margin, and then relies on cost accounting and production know-how to find a way to make the product

at the target cost. This often involves value engineering of the original design to find ways of reducing the

production cost without detracting from the desirability, quality, and selling price, of the product.

An exam requirement involving target costing could require you to deduct the mark-up of the retailer (stated

on page 4 as between 50% and 100%), from the final market sale price, then deducting the gross margin

required by Jot (presently 31.9% overall according to page 15) to get to the maximum price from the

manufacturer. So if the final selling price of a toy is €100 and the retailer has a 50% mark-up then Jot sells the

product to the retailer at €66.67 (100%/150% x €100) of which the price charged by the manufacturer can be

no more than €45.40 (1-0.319 x66.67).

If this target production cost is unlikely to be achieved then the product should not be made unless either the

price can be increased and/or the manufacturing cost reduced. You may be asked to advise on this.

You might also advance a criticism of the exclusion of the management accounting function at Jot from the

new product development (NPD) process described on page 5. This exclusion of cost considerations might

lead to products being displayed at trade shows that are later found to be uneconomic to make.

Issue 5 – protection of IPR’s

The pre-seen makes clear that IPR’s are valuable. It buys some of these in from licensees at a cost (page 3)

but in the main it relies on its annual research and development budget of €1.2m to develop ideas that can be

registered as IPR’s belonging to Jot. A particular invention requiring IPR protection seems to be the ASIC

components referred to on page 6.

IPR’s are the source of differentiation in the toy market. Jot’s toys are special because they have a particular

set of features, or are associated with particular benefits or popular characters and shows. Without the IPR

the toy is just a piece of plastic and its sales revenue and margins will be much lower.

Jot needs to control and defend its IPR’s. We can assume that Anna Veld, the Licensing Director, has some

knowledge of the law around IPR’s, but several procedures seem to invite loss of IPR’s:

The prototypes are made and shown to target consumers, perhaps in family focus groups, before the

IPR’s are registered (page 5). We can assume these prototypes are being evaluated by families rather

than retailers who might tip-off competitors;

Prototypes are made and tested by a European manufacturer outside of Jot and therefore this

manufacturer is given the plans;

Designs are given to several manufacturers (page 5) of whom one will be given the contract to make the

toy, whilst the others can set about finding ways to make a similar toy without infringing the IPR’s;

Plans for the ASIC components are also given to the manufacturer who then passes them to its suppliers

without reference to Jot.

Past T4 exams have featured questions involving infringements to IPR’s framed as a decision making

question where the costs of legal action, the potential award, and the probabilities of success in court, are set

out as a decision-making problem.

Although not a technical management accounting issue with numbers, the protection of assets and the

avoidance of risk was a key part of your P3 studies. You should be ready to recommend improvements to the

control of IPR’s.

Some strategic issues facing Jot

‘Buzz, the monkeys aren't working! We're formulating another plan, so stay calm! ‘

The T4 exam is a management accounting exam and the issues you will be ask to advise on are likely to be

similar to the financial management issues described above. You will need to keep your eye on the present

problems of Jot, as they appear in the unseen material on exam day. But you need to consider and explain

the strategic context of decisions. Individual business decisions are like laying flagstones to build a path. Each

decision is a single step, but each step takes the firm in a direction. Before laying down more flagstones Jot’s

management needs to glance up and consider where the path is leading, and where they want it to lead.

The following are some of the strategic issues facing Jot.

Issue 6 – focusing the Jot product portfolio

The pre-seen describes a firm with limited capital which it needs to use carefully to meet its growth plans.

According to its 5 year plan its gross margin will rise between 2011 and 2016 despite the average price of its

product falling from €13.97 (€9,866k/706.3k units) to €13.71 (€19,260k/1,405k units). This suggests that it

may be relying on cost reductions as the way to improve its margins. So would increasing sales volumes and

The product portfolio described on page 3 is not wholly consistent with Jot’s positioning and reputation for

innovative, educational, electronic toys. For example toy vehicles, soft play toys, plastic figures, and dolls and

action figures. Page 4 tells us that ‘80% of [its] products are sold to retailers for €20 or less’. This recalls the

Pareto rule, that 20% of items often deliver 80% of value. There is a possibility that these are suffering greater

market competition and are less profitable. Also where products are licensed in there is little opportunity for

Jot to add value because they are actually just acting as a manufacture and distribution partner for the

licensor.

To conserve its capital and to achieve better margins Jot may need to focus more closely on what it can do

that is unique. It’s distinctive competence. This would probably lie in educational products.

Product Profitability Analysis (PPA) would assist this decision. At the moment Jot is focused on the gross

margins of its products, defined as ‘sales revenue less the outsourced manufacturing cost of units sold’ (page

6). However 80% of its products are sold for less than €20, and the average price of its products is just less

than €14 per unit (page 4). There are many costs involved in designing, prototyping, testing, licensing,

ordering, marketing, and supplying toys that must be deducted from each product’s net profitability. These

costs are independent of product selling price and sales volume. It is possible that proper PPA, using sensitive

Activity Based cost drivers, might reveal that some of Jot’s products are actually being sold at a loss.

Issue 7 – warehousing and licensing

Jot is a network organisation sitting in the middle of web of relations with retailers, manufacturers, testers, and

license owners. It would seem to add value to the network through the designs and market knowledge it has.

This opens the question of why it remains involved in warehousing when operating them could be outsourced

easily, and at lower cost perhaps, to specialists. Continuing on the same theme, why does it not simply license

out its designs and escape the risks and uncertainties of manufacturing, marketing and logistics altogether?

Tying up capital in inventory and debtors is a poor use of money when it could be adding more value if spent

on research and development.

Issue 8 – focusing the client portfolio

‘Welcome to Al's Toy Barn. We've got the lowest prices in town. Everything for a buck-buck-buck.’

Jot has 350 customers (page 8) consisting of retailers and distributors (page 7). Of these 7 large customers

account for over 68% of Jot’s total sales (page 8).

From our knowledge of the real world we could surmise that these are likely to be catalogue selling

operations, like Argos, on-line operators, like Amazon, category killers, like Toys R’ Us, and some of the larger

supermarket and store chains such as Tesco and Wal-Mart. These firms are pan-European and several have

operations in the USA. The remainder will be smaller toy stores, department stores, and on-off operations like

Al Mc Wiggin’s Toy Barn in Toy Story.

Consider this from the perspective of Customer Profitability Analysis (CPA). Smaller stores will be expensive

to serve because they buy in small and unpredictable quantities. This requires Jot to have a warehousing

operation. Where Jot supplies through a distributor then the prices must be very keen because both the

distributor and the final retailer need to get a mark-up, but they will also want the final selling price to be

competitive with the prices of the larger players.

Given that Jot is seeking to enter new territories as well as expand its sales in its present 22 countries it might

be well advised to begin targeting and attracting the most profitable customers.

We are not told in the pre-seen how Jot tracks and attributes its costs to clients. To analyse them for CPA

purposes would need sophisticated assessment of the margins from the mix and quantities of products bought

by each customer, and a comparison if these against the unit costs of the items plus the other activity-driven

costs of order taking, order handling, inventory holding, credit control, logistics, returns and so on.

There may be problems in Jot doing this because ‘some of the systems are not ideal and do not provide Jot’s

management team with all the data that it requires’ (page 9). This might affect its ability to conduct Product

Profitability Analysis too. There is also no IT expert at Director level because Tani Grun combines this with her

finance role (page 11). Establishing a better system that can analyse the history of purchases by customer,

and which can track numbers of orders, sales visits and so on is likely to be expensive to set up and we

remember that Jot has limited capital.

Ethical considerations will be examined in the T4 exam. Consideration to protect the margins of smaller

stores, and its own margins, may have been behind the illegal cartel operated by Hasbro for large catalogue

operations to charge the recommended retail prices for its toys that resulted in it receiving a £15m fine in 2003

which was waived when it turned evidence against two of its largest customers who instead received fines

totalling £23m. There are quite a number of ethical issues here, including abuse of monopoly position to

exploit the customer, breaking competition law, and the questionable tactic of escaping punishment by

blowing the whistle on their former partners in a cartel that they themselves instigated.

Issue 9 – strategic IT

As mentioned above, Jot has IT systems that are less than ideal (page 9). These systems seem to comprise

the accounting system, an inventory control system (also called a database system), and its CAD/CAM

system. Jot also accesses, via an extranet presumably, the tracking and logistics systems of its logistics

partner, and the systems of its outsourced manufacturers. There does not seem to be any Customer

Relationship Management (CRM) system in place and it is unclear how orders are entered. There is also no

external intelligence in the system despite Jot recognising that its costs are ‘subject to price fluctuations’ (page

6) and that is works in a competitive market. The systems are not integrated, and this means that error and

waste will creep in and that data analysis will be held back. The accounting systems ‘do not accept data

directly from any of Jot’s other IT systems’ and there is replication of data between systems. The systems

were developed ‘some years ago’ by an external consultant and there is no expertise at board level able to

take the systems forward.

Jot lacks an end-to-end view of its business. The exam may ask for suggestions on improvements and instead

of simply saying ‘Enterprise Resource Planning system (ERP)’ you could make the following specific

recommendations:

Interface the CAD/CAM system with the database of costs for the components (referred to on page 6) to

help value engineer toys from the start and ensure their profitability;

Give the manufacturers and logistics firms access to the customer orders to make fulfilment quicker,

especially if Jot decides to move to near-shoring and more flexible manufacturing arrangements. This

would reduce costs along the supply chain such as from rush orders and inventory carrying;

Give customers access to the tracking systems of the logistics firm. This would help them advise staff on

delivery dates and manage their own inventories better. This will build loyalty and help build sales

volumes and margins;

Import data from the point of sales systems of the main retailers. This will automate replenishment orders

and also provide intelligence on which toys are ‘going viral’ for Christmas and becoming the ones which

need to be produced in greater quantities quickly. This will boost sales.

Track customer profitability by assigning costs to all the activities, and sales, recorded in the CRM. This

can help manage costs and profitability, perhaps by ceasing to supply them directly and migrating them to

a different solution such as distributors or purchase from a web page;

Reduce costs and improve working capital management by instituting electronic invoicing and settlement

using standard times agreed with clients and suppliers

Introduce e-procurement systems, such as a purchasing portal, to attract tenders rather than just ‘asking

the same outsourced manufacturing companies which it has used previously’ (page 6). This would enable

cost savings on tender process, lower prices for products, and access to a wider range of manufacturers

giving greater flexibility;

Introduce an e-commerce solution to cut the costs of selling and customer support. Smaller clients could

open an account and place orders on-line (thus allowing cybermediation through bypassing the distributor

and allowing Jot to capture the distributor mark-up), or interfacing with the portals of on-line stores to

provide product information, prices and availability;

Develop websites to support the product such as technical questions, additional content, player-to- player

interaction and so on. Consider how Nintendo uses the Internet to involve users more in Wii and DS and

so enhance sales, acceptance of upgrades and ad-ons, and loyalty.

But recall that Jot reported profits of €246k in 2011. It cannot afford significant IT systems improvements, and

it cannot borrow significant capital from banks.

Also consider how this new system could be managed. Tani Grun is ‘considering recruiting a new person to

take responsibility for IT’ (page 11) but you might suggest that the range of solutions needed, the limited time

available, and the global nature of the what you are proposing would be better provided by an outsource

partner (and if so it’s a good idea to have a few real world names of such partners ready for the exam).

Also in the age of ‘the Cloud’ would better systems necessitate huge capital expenditure on equipment and

software? According to a Comp TIA survey in July 2011 the ‘sweet spot’ for cloud adoption is the Small and

Medium Sized Business (SMB) with turnover between £10m and £100m which is the range that Jot will be in

soon. Jot has limited capital. It also has peak demands for 3 months and outside of that it is limited. The

expensive systems would be idle for much of the year. You might suggest instead employing Infrastructure as

a Service (IaaS) to give the hardware, Platform as a Service (PaaS) to provide the maintenance and

development, and Software as a Service (SaaS) to make it work. It could enter partnership contracts to lease

capacity from an established provider of end-to-end solutions.

Inevitably performance measures might be involved in the evaluation of new IT systems and the

improvements they bring to the business. Consider what Critical Success Factors (CSF’s) there are in the toy

business (e.g. right toys, stock availability, reliable delivery. quality, competitive pricing, margin). Evaluating

the suitability of an IT solution involves considering how far it can improve these. KPIs are used to ensure the

system is delivering the benefits it promised, and to permit management control. Consider what possible KPIs

there are for each CSF, and recommend that the new systems monitor and report on these too.

Issue 10 – New products and earnings

The pre-seen states that Jot does not produce toys for the under 3’s nor for the over 8’s (page 3).

It is doubtful that the under 3’s is an attractive market for Jot because its distinctive competence in electronic

educational toys is unlikely to be exploited there. Under 3’s are toddlers and they are still learning motor skills.

These require physical toys for them to manipulate, not toys that move by themselves and which also talkback.

The over 8’s is much more promising. The real world Nintendo DS is marketed as a games consol suitable for

over 3’s up to adults. The consoles are the same, but age differentiation is achieved by the application. The 6

year old will play Super Mario and Pokémon, whilst their parents will be buying ‘brain training’ and ‘maths

tuition’ packages for the teenagers, and possibly using their own Nintendo DS for puzzles and to keep their

neural pathways open. They can also read books on them.

If your are asked to evaluate new products aimed at these older segments be ready to cite the examples of

Nintendo and PS4, and the way they are marketed, as examples of what Jot could do.

The other advantage of the Nintendo approach is that it enables the firm to lock in the user and perhaps

exclude the retailer. Once the user has the hand-held consol they will depend on Jot for upgrades, new games

and access to peer users. These consoles feature connectivity via Bluetooth and wi-fi and therefore it is

possible for them to download the new software (and promotional messages) straight from Jot. This is high

margin business because the variable costs to Jot of a download of software are zero (or the license fee if the

IPRs in the software belong to someone else).

Issue 11 – risk management

Jot runs a number of significant risks:

Risks to IPR’s: these were discussed earlier under Issue 5;

Foreign exchange risk: it contracts sales in numerous currencies but contracts its manufacturing in China.

It also has the costs of warehouse operations in Europe and USA. This creates potential for risks in

translation (affecting the value of assets) and transactions (the value of money received from sales versus

the value of debts owed to suppliers);

Credit risks: it is owned substantial amounts by retailers at year end and during the year. Default or delay

by a retailer could seriously harm its cash flows;

Product risks: Jot could be held responsible for injury or trauma to a child caused by its toys. It is

significant that page 10 of the pre-seen details this aspect and, in the final sentence, states ‘Jot cannot

delegate this responsibility’. This spotlighting of product risk (or perhaps compliance risk) suggests that

the examiner wants you to notice it;

Personnel risks: it is a small firm and the loss of a Director would make it difficult for it to operate and

grow. In addition these staff know about products and contacts and could commercially damage Jot if they

defected to a rival. Two Directors hold no equity in Jot and this will loosen their loyalty;

IT systems risk: the systems are possibly inadequate, but more importantly the person overseeing them is

not a specialist and is overloaded. They are crucial to its operations and to its strategic development.

There is no information in the pre-seen material on how these risks are managed. Small firms like Jot do not

have to comply with the codes on corporate governance and have audit or risk committees. But for a small

firm like Jot a crystallisation of any of these risks could easily destroy it.

Issue 12 – new countries

Page 9 tells us that Sonja Rosik ‘has been working on the establishment of links and promotion of the Jot

brand in new geographical markets’. Page 10 identifies these as the Russian and Asian markets and tells us

that Jot wishes to ‘establish distribution links...and arrange for delivery of toys direct to customers based in

Asia’. This is followed by the lessons from its American experience, ‘to ensure its products are available if

demand exceeds expected supply levels’. The 5 year plans shows that Jot intends to add a further country

during 2012, and 2 more in 2013, 3 more in 2014, and then 4 more each year until 2016.

Entering new countries will have the following implications for Jot:

There will be logistics issues. Even if they supply the Asian markets from the Chinese factories it would be

unrealistic to supply the whole of Russia from the European warehouses. Empires have fallen from

underestimating the size of Russia, given that Russia extends from middle Europe across to further East

than China (although the majority of its population is concentrated in its European western cities and in a

band along its southern borders);

It will demand increases in working capital to stock up to supply the market;

There will be a need for changes to languages and cultural references in the games and learning

products;

There will be additional foreign exchange risks due to exposure to the Russian rouble, and the specific

currencies of the Asian countries (anywhere from Pakistan to Japan and in the real world Asian trade

groups often include Australia);

There will be political risks in several of the countries that are quite different from the risks in Europe and

USA. Consider recent political developments in Pakistan, China and Russia which seem to reflect a lack

of genuine popular support for leaders which will spiral into increasing political and civil instability and

repression;

You might consider the most appropriate entry strategies for Jot. Should it reduce its risks, and capital needs,

by licensing the rights to local manufacturers and marketing firms? Or form a joint venture with local firms.

What risks to IPR’s, do you see, and how would Jot maintain financial control?

I doubt you would be expected to suggest these as ideas. They might be proposals given in the unseen on

exam day and you would be called on to evaluate them.

Preparing for exam day

‘Buzz, you could have defeated Zurg all along! You just got to believe in yourself!’

Many students find the T4 exam emotionally taxing. You will find passing it emotionally elating.

There are several resources on the CIMA website providing information on what the exam will be like, and the

skills it tests. There are study texts and toolkits available that can tell you too. And there are tuition courses

both face to face and online. This article is not going to cover that again.

But to finish, please be aware that, unlike all your previous CIMA exams, T4 cannot be passed by learning a

syllabus, text book, and what a tutor tells you and then writing down what you remember in the exam room.

You cannot prepare to run a marathon just by reading a map of the route. You have to take practice runs and

become physically and emotionally prepared. It’s the same for T4.

The way to pass T4 is:

Understand the pre-seen material. I hope this article has helped you to begin doing that;

Understand what the T4 exam wants from you and understanding how your script will be marked using

the assessment matrix. Looking at past T4 exams and the examiner’s Post Exam Guides on the CIMA

website are the best way to do this;

Practice exams against the clock to hone your exam day approach and time management. These could

be the commercially produced mocks, based on Jot, or otherwise use the real exams from 2011 to help

you;

Try to get feedback on your script by having it marked professionally by a tutor, or show it to someone

who has passed T4 and ask them for their comments.

To finish off with my two favourite quotes from Toy Story:

‘I just don't think I can take that kind of rejection!’

There may be points in your preparation when you will wonder whether you can pass this final exam

‘I have been chosen. Farewell, my friends. I go to a better place’

And when you do pass it you feel a real sense of achievement. It’s the last CIMA paper you have to sit, you

have achieved your ambition, and you have proven that you are competent as a management accountant to

the standards set by the World’s leading professional body for management accounting.

Good luck!

[email protected]

Adrian Sims is Publishing Director of BPP Learning Media Ltd and is responsible for the T4 materials it

produces. He teaches T4 for BPP Dublin.

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Toy Story - analysis of the Jot case study Adrian Sims of BPP Professional Education provides some initial analysis of the pre-seen material for the TOPCIMA Part B – Case Study exams on February 28 th and May 24 th 2012. I’m writing this article in late December 2011 to help candidates prepare for the March and May 2012 T4 (TOPCIMA) exams based on the pre-seen material for Jot- toy case. Some previous T4 cases have lacked fun, but toys are fun. I’m sorry, but I decided to combine this article with quotes from the three Toy Story movies (Disney/Pixar). The Toy Story quotes are in italics, a bit contrived, and probably of no use for the exam. They made me smile and gave me (and you) an excuse to watch the Toy Story movies again. But my newspaper today rather kills the joyful mood. It has the headline ‘Sales boom may not save High Street big names: analysts predict failures within days’. It reports that the December sales boom has been insufficient and has left many stores with unsold stocks and unable to pay their outgoings. This has afflicted markets as diverse as camping equipment and lingerie. This brings us to the heart of the Jot pre-seen material. Jot makes toys and is part of an industry for which November and December sales are critical. It depends on retailers to sell its products, but retail in Europe is facing terrible times as a consequence of the recession caused by the sharp reductions in government spending and collapse of bank lending. It has a perilous cash flow position such that at December 2011 it is owed €4.065m by retailers – representing 76% of its capital base (€4,065k/€5,378k) with a further €542k in unsold inventory (10% of total assets). You will be taking the examination in March or May. You are a specialist in financial management. You will be expected to give advice to management to ensure that it survives beyond December 2012. Remember what the T4 exam seeks to assess Buzz Lightyear’s cry of ‘To infinity and beyond’ led him to crash to the floor because he was trying to do too much. He couldn’t fly. Reading the CIMAsphere posts during 2011 it looks as if a lot of candidates are still being encouraged to try to fly, by approaching the T4 exam with a strategic mindset rather than a management accounting mindset. Let’s not try to fly to infinity in our speculations otherwise your examiner might conclude ‘that wasn't flying! That was falling...with style!’ and fail you. The T4 – Part B Case Study exam is a Test of Professional Competence in Management Accounting. It is a management accounting examination, not a second Business Strategy exam. Your role in the exam room will be that of a management accountant reporting to Tani Grun, the Finance and IT Director. The examiner will instruct you to conduct management accounting tasks for Tani Grun and/or the Board of Jot. The four exams in 2011 did not involve complex questions on acquisitions, overseas expansion, or changes to mission. They involved dealing with late-running projects, meeting emissions targets, assessing investment proposals from financial and non-financial viewpoints and providing recommendations, and the short-term financial and non-financial impacts of other business choices. The balance you have to strike is to deal with these management accounting and financial management problems in a robust, technical way, drawing on the knowledge you have gained from throughout your CIMA studies. There will be numbers to do, and formal management accounting concepts to deal with. But put them in their broader context by referring to their implications for the management of Jot and for its strategic position. I do anticipate that there may be a slightly more strategic element to the Jot exams than there was in the exams in 2011. Jot is a small firm, and this means that management accountants will be expected to make a bigger contribution to the decisions of the business than would be the case where the management accountant works as a team leader dealing with month ends in a large firm like the ones featured in the preseen material for the 2011 exams. Also we are told that Tani Grun ‘is finding the role more challenging’ (page 11) and so may be willing to delegate more to you, a member of her finance team. This article will stay rooted in the management accounting/financial management aspects of the pre-seen material for Jot, and bring in the strategic issues towards the end. I think this is the right way to see this case. The T4 assessment matrix and passing the exam The case study material is provided in two documents. The pre-seen material has already been posted on the CIMA website and is relevant to both the March and May exams (please note, the ‘March exam’ is actually on February 28 th this year). The second part is the unseen material and it progresses the story from the pre-seen. It will be given to you on your exam day as the second half of a booklet that contains the pre-seen, the exam

Page 2 and 3: equirement, and also mathematical t
Page 4 and 5: Jot’s operational position is des
Page 6 and 7: Page 4 tells us that its bank will
Page 8 and 9: The examiner has used probability-b
Page 10 and 11: The product portfolio described on
Page 12 and 13: But recall that Jot reported profit
Page 14: Preparing for exam day ‘Buzz, you

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T4- Part B – Case Study Jot – toy case – May 2012 REPORT Review

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Jot case study

This is called the ‘scenario. These issues may or may not have been mentioned In the case duty material. Your role Is to produce a report to the board that priorities these current issues, discusses and advises upon them. Wednesday and Thursday Groups: Each group Is to prepare the answer for the Issue specified below. These will be presented In class on the assigned day. I will give you some time in class to look at this but I am expecting (hoping! ) that you will do some work before class as well.

Prepare: Fault in new flying spaceship toy (Problem and Ethical Issue) Group 1: Bosky Tests Nikkei Aids Group 2 : Launch of new range of toys for 9-11 age group (Evaluation) Group 3: Puma Prepare: Boeing Monika Scrabbles Group 4: Near-shoring proposal in Volcanic Handgun Apple Group 5: Group 6: Sony Coca Cola Prepare: Late delivery of Christmas product (Problem and Ethical issue) Group 7: Voluptuousness Group 8: Ford Walt Disney Assignment for 12th and 13th March, 2014 Issues facing the Business There are two types of business issue that could appear in the scenario a problem and a proposal.

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The approach normally taken for each is different and suggestions are shown here: A Problem: Explain the Impact of the problem The objective here Is to focus the management In terms of what Is Important In the issue in order to galvanism them into action. Consider any financial (backed up by FIFO numerical calculations) strategic (Tacked up Day appropriate strategic tools) or reputation impacts. You should back up your points with real world examples where possible. Discuss potential solutions to the problems You should identify either two or three potential solutions and express your opinion on them.

Provide an analysis of each of the potential solutions such that the reader can make a decision whether or not to go with them.

This section is therefore, a brief assessment of the alternatives and not a set of recommendations. Recommendations All reports need an output. Outputs take the form of the consultant expressing an opinion on the steps the business should now take. Hence you need to make recommendations. The style of recommendations will differ for problems and proposals: Problems: Select from your alternative solutions the one (or two) that you feel the business should follow.

You should then expand on the solution(s) to provide a detailed justified action plan. Consider who, where, when, how and what in your recommendations. You may feel that in some cases actions should be split between short-term and long-term needs. This is fine. A Proposal: Background to the proposal Explain the theoretical background to the proposal.

Again you are trying to focus the managers’ attention on what the proposal attempts to achieve. They should then be in the right mind set to read your assessment of the proposal and hence make an informed decision. Discussion of the proposal You need to assess the proposal made.

Remember it is for the board to decide what the most appropriate course of action is to be. It is your Job (in this section) to discuss the proposal so that management understands all the factors it needs to consider.

There are options here as regards approach: For strategic proposals (new products or new markets for example) you can assess the market’s suitability, the acceptability and feasibility. Suitability is a market assessment I. E. Is the market appropriate for this organization. Acceptability is the stakeholders’ return and risk assessment, which tends to focus on shareholders as the principle stakeholder.

Other stakeholders (if important) could also be considered.

Feasibility considers whether the business has the resources to undertake the proposal. For an Operational proposal you can simply discuss the factors surrounding the session or even detail the advantages and disadvantages of it. Operational proposals include for example a proposal on the finance arrangements of the business or a new bonus scheme suggestion. Recommendations proposals: Proposals You must with Justification: Accept the proposal or reject it as it stands.

A third option is to suggest amendments to the proposal as stated If you accept then you should detail any significant Implementation Issues Ana Inhalant want must De done auto teen. IT you reject ten proposal then you should state why and indicate what you recommend the business would do as an alternative.

You can of course reject on the grounds a better deal might be possible but you must say what that might be. Note: in all cases recommendations should: Be specific, achievable, actionable, commercially realistic, and strategically sound. Be decisive -tell management what to do. Do not set management objectives (e. G. Ensure that you improve your controls”) but tell them how, what, where and why! Do not merely say that management ought to ‘investigate’ – that is your Job and this report is the result of that investigation – theorist if you have to.

Ethical issues You need to demonstrate you understand important ethical issues facing the business. Your report should: Explain the ethical dilemma. Be careful to restrict yourself to the ethical issues and not get drawn in to other related business issues. For example it may enhance your reputation or improve sales to behave ethically, but these are business advantages of ethical behavior.

Businesses should behave ethically regardless of business consequences. Ethical issues concern amongst others such things as: confidentiality duty of care conflicts of interest, honesty, objectivity,freedom from bias COMA issue ethical guidance and this can be found on the COMA global website.

Give advice on how to resolve the ethical issue. As with all recommendations, be specific and forthright. Sitting on the fence will come across poorly. You should address at least two ethical issues fully. The distinction between a business issue and an ethical issue is important.

A business issue is one that directly affects revenue, costs or profit both now or in the immediate future.

It is one that is significant and where there is a clear and present ink between it and the financial performance of the business. An ethical issue is one that presents a moral dilemma to the management. They have a choice of action and so normally an ethical dilemma is not one that is governed by tight legislation. Common ethical issues surround a duty of care to a stakeholder, confidentiality, conflict of interest, unfairness, lack of objectivity and so on.

Procrastination of the main issues facing the business: we will deal with this in class Any consultant will add value by taking the issues facing the business and dealing with the most important ones first. This is a key skill off management accountant.

Issues that might be financially significant, strategically important or simply urgent could all rank as items that must be dealt with soon. You are expected to decide for yourself what you think the important aspects are in the scenario and write about them in the report in the order of importance. A procrastination section in the report can be used to Justify your order if you wish.

The layout for which could be as follows: What is the issue? Winy Is It Important to ten Dustless? Ranking -why is this issue more important than your next choice? Create the need or management action or decision e. G.

‘thus management must decide whether to accept the proposal or not’ or ‘thus management will need to develop a course of action to reassure stakeholder concerns. ‘ There is no need for this section to be very long as it merely Justifies the order in your report Case study Review 5th and 6th March: you have already undertaken this analysis this week. Below is a summary of what you have undertaken.

The main idea behind the case study material is to ensure that the consultant understands the business upon which he is advising (this is no less than would be necessary in a real tuition). Accordingly, you should begin by reading and analyzing this case study material.

Analysis can take many forms and provided here is some brief guidance on areas to consider and approaches you could take: What – so what analysis: note down the key facts from each section of the case study material (this is the ‘what’), then consider the implications of that fact (the ‘so what’. For example suppose you were told that the business did not have a marketing director (the ‘what’. ) The implication here is that the business may not grow to its full potential and may miss UT on potential opportunities that arise (this is the ‘so what’. ) SOOT analysis: the strengths weaknesses opportunities and threats of a business. This tool is probably essential in most business analyses (and certainly for this exercise.

) Strategic analysis: there are many technical tools open to accountants that can be used to understand the strategic position of a business.

Details of these tools can be found on the internet or any strategic management text book. Commonly, if you are concerned about: the market growth potential – do a PEST analysis the competitiveness in the market – o a Porter’s 5 Forces analysis the current strategic approach – do a Porter’s generic strategy analysis the potential strategic development – do an Insofar growth vector matrix the position and power of the key stakeholders – what the key drivers of the revenue and profit are – identify the critical success factors The objective here is to understand what the business is doing so that you can better advise them.

Equally, reference to these tools is useful in a report to support an argument or suggestion being made. 1 Financial analysis: a company’s finances need to be understood as it helps you give better advice.

For example there would be little point suggesting expansion too business if it had no cash and little prospect of borrowing any. 2 Financial analysis is best performed in sections; looking at profitability, liquidity and risk position.

Again a good management accounting book would show you what calculations to do and suggest methods of interpretation. Industry research: an accountant will often do a little research on the industry to gain better understanding. Again sometimes the examples from the real world uncovered by this research can be used in a report to add support to an argument or suggestion.

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Toy products are subject to strict safety and quality regulations around the world, making it imperative that toy manufacturers have a reliable and robust quality control program in place to ensure compliance. In such a fast-moving industry, this program must also be flexible and allow for unpredictability.

This case study demonstrates how QIMA helped a leading toy company improve the quality of their products and adaptability of their supply chain through a comprehensive inspection, audit and lab testing program.

Client Background

The client is a major European toy company sourcing over 1,000 product lines from Asia. The bulk of its sourcing is done in China, Vietnam and India and its sales region is Europe and the USA.

As a toy manufacturer, the client had a particular responsibility towards children and parents to ensure the safety of their products. The client aimed to live up to its image as a creator and supplier of top quality creative and educational toy products.

The client produced three core lines (toys and games, decorations and creative leisure) spanning over 1,000 products every year, sourced from over 70 factories in China, India and Vietnam. Constantly innovating, they create a new product nearly every day and are always willing to take risks to turn dreams into reality. Such originality brings a great deal of unpredictability to the supply chain.

In order to achieve their goal, the client must comply with a wide range of laws and regulations in the EU and US regarding the production of their toys. QIMA's role was to help our client in doing the utmost to ensure that these requirements were met.

Toy regulation is organized and based on the intended use of the toy, the age category (children under 36 months etc.), and the material used (wood, textile, cardboard and paper, electrical components etc.).

QIMA was able to provide the necessary expertise in supporting the client in achieving compliance in all of these categories through audits, inspections and lab testing.

Implementation

Utilizing our expertise in the toy industry across audits, inspections and lab testing, QIMA was able to design and implement a full quality control process across the supply chain.

The program aligned with the client's exact specifications for each product and category, incorporating technical diagrams and information regarding product and age categories for each unit.

Thanks to QIMA's extensive network coverage, the program was implemented and coordinated across China, India and Vietnam, allowing the client to check production at any stage of the supply chain.

In order to ensure that all products that arrive at customs comply with EU and US regulations, QIMA implemented a strict process of tracking production from end-to-end and organized random sample collection at various stages of the supply chain for lab testing. On behalf of the client, QIMA conducts tests according to the New Toy Safety Directive EN 71-1/2/3 for the European market and CPSIA ASTM F963 for the US market.

QIMA's Total Quality Control Program consisted of:

Safety Assessment
Ethical Audits
Pre-Production Checks
During Production Checks
Pre-shipment Inspections
Container Loading Checks
Lab Testing
Measuring Impact and Results

In addition to designing and implementing the program, QIMA was able to provide the client with online Business Intelligence Tools which provide the client with real-time data on individual suppliers and their performance, allowing the client to monitor progress at all stages of production, including the results of Ethical Audits conducted regularly across their 70+ suppliers.

QIMA was able to provide the client with a simple, effective and comprehensive quality control program, and worked with the client to develop it into a global supply chain solution.

Prior to beginning the program, the client had a Beyond AQL rate of over 38%. One year after implementing the new program, the client reduced poor quality products and the Beyond AQL rate decreased by 40%.

The program enabled the client to be proactive in responding to their flexible supply chain needs by using critical point analysis to identify strong and weak points in their production, ensuring that production needs are met in a timely fashion and comply with all necessary regulations, in addition to reducing the risk of costly recalls and ensuring that their responsibility to the consumer is met.

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Got an Idea for a Toy? Toymakers Want to Hear From You.

Companies like Lego and Mattel have divisions that seek out design concepts directly from collectors and other highly dedicated fan bases.

Shoppers browse the aisles of a Lego store, which features a set on display that includes creatures from Dungeons & Dragons.

By Isaac Aronow

Near the end of 2022, Lucas Bolt, an environmental artist and Lego enthusiast in Amsterdam, was working on a design for a Lego set the company had crowdsourced to commemorate the 50th anniversary of Dungeons & Dragons, the tabletop role-playing game.

“I spent two very intense weeks working on it, every night, every weekend, all the time that I had,” he said.

Mr. Bolt was hoping to create the design for Lego Ideas, a program the toymaker started in 2008 to solicit ideas online directly from fans. Typically, designers post their concept on the platform, and if a design gets 10,000 votes, the company considers it for production. This case was different, though: It was the first time the company had given fans a concept to work with.

Mr. Bolt had been designing his own sets for a few years, primarily for his followers on Instagram , but this was the first time something he had produced had gained real traction. A panel of judges selected his set and four others for a shortlist, and in a vote fans chose his set as their favorite.

Lego Ideas is part of a growing strategy among companies that are creating divisions devoted to going directly to consumers for ideas. Lego takes a more personal approach, allowing fans to submit designs, while other companies poll consumers about what they would like to see or speak to inventors about their latest projects. These initiatives are finding particular success within niche groups of collectors and other highly dedicated fans.

Toy companies that have direct-to-consumer models do not have the same audience reach that distributors like Amazon have, but a unit devoted to direct sales still provides advantages for the overall business, said Jaime M. Katz, an analyst who covers the toy industry for Morningstar, a financial services company. The primary reason companies like direct sales is the speed at which they are able to get access to purchasing data from consumers.

That data can help toy companies bring products to market faster, Ms. Katz said, and capitalize on trends and purchasing patterns. There’s also less excess inventory and, by extension, fewer markdowns on items sold on the company’s websites.

“You don’t want to be the last adopter of the methodology,” she said, “Somebody might be able to move faster than you.”

Many companies, Ms. Katz added, see their direct-to-consumer divisions as the next iteration of a focus group. “You can collect the data in a much larger fashion,” she said, “It’s not like six people sitting in an office in Chicago and they’re asking, ‘Well, what do you think of Barbie?’”

As it turns out, Mattel does want to know what consumers think of Barbie, but it is taking a niche approach through its Mattel Creations website, where it runs crowdfunding campaigns tailored to its fan base for Barbie, Hot Wheels and other brands.

“The wealth of information, which we generate from our fans, is priceless,” said Sanjay Luthra, managing director of Mattel’s global direct-to-consumer portfolio.

Feeding into consumer obsession is a big part of Mattel’s product development strategy, said Mr. Luthra, who added that Mattel was constantly checking what fans were saying on social media to get product ideas. For example, Weird Barbie , which the toymaker sold on the Mattel Creations website after seeing the enormous response to the “Barbie” movie on social media, was the highest-selling doll ever on the platform, he said.

A design solicitation program like Lego Ideas can also help guide companies in their product development. “We have 10,000 people who told us they want this product,” said Monica Pedersen, marketing director for Lego Ideas. “That’s very special, because we don’t go out and test every single Lego product with 10,000 people.”

Magic: The Gathering, a trading card game owned by the gaming publisher Wizards of the Coast, uses a similar program, called Secret Lair, as a way to sell special cards that have added visual treatments like custom art.

Secret Lair gives the company “a pipeline of awareness that we just never had,” said Mark Heggen, vice president of collectibles at Wizards of the Coast, which is owned by Hasbro. “We have a little lens into reality, so we can understand how people are behaving, what’s exciting to them, if they’re coming back or if they’re lapsing.”

Spin Master, a toy company in Toronto, has been soliciting inventors for ideas since its inception in 1994. The company’s greatest advantage comes from the “mutual respect” it has with the inventor community, said Ben Dermer, senior vice president of toy innovation at Spin Master.

“I think at other companies over the years, inventors have oftentimes been maligned, not treated as well as they could have been,” he said.

There are about 300 professional inventors in the toy industry, Mr. Dermer said, and Spin Master is in regular contact with most of them. Typically, before an idea is formally submitted to Spin Master for consideration, a member of the company’s inventor relations department has already had lengthy discussions about the viability of the product.

For his work with Lego, Mr. Bolt will be rewarded with a 1 percent sales commission on each set, and 10 copies of the set for himself. The final set, called Red Dragon’s Tale, has 3,745 pieces and features a playable adventure and, of course, a dungeon and a dragon. It sells for $360 at Lego Stores, a price well above most of the company’s mass-market offerings.

Lego gets thousands of submissions through the Ideas program, but the bar is high for a set to make it to customers. Normally, if a set receives more than 10,000 votes from fans, the company considers it for production. Once made, the set is sold both directly from Lego and by retailers like Target and Amazon.

About a hundred sets a year reach the vote threshold (though that number increases every year), and from those only 56 sets, including Mr. Bolt’s design, have reached production since the program began in 2008. Compare that with the 916 sets the company released just in 2023.

The sets still go through Lego’s internal design and testing. The company meets with the designers working on Ideas sets once or twice a month to ensure the product is living up to their vision, Ms. Pedersen said.

“It was very special to see as a Lego builder how they approach it,” Mr. Bolt said of his experience with Lego testers. “It was a whole team of designers, which was really cool that they spent so much time designing something that I came up with.”

Isaac Aronow is an editor on the Games team. More about Isaac Aronow

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COMMENTS

Jot case study
Jot toy case study report summary. May 28, 2013 • Download as DOCX, PDF •. 1 like • 3,535 views. AI-enhanced title and description. M. MidoTami. This report analyzes and prioritizes issues facing toy company Jot. The top priority issue is a supplier, Gull, will only deliver 75% of Jot's Christmas order on time.
Jot Toy Case Study Challenges Growth
Jot - Toy Case Study _STM End Term - Free download as PDF File (.pdf), Text File (.txt) or read online for free. Jot is a toy company established in 1998 that designs and sells toys aimed at pre-school and elementary school-aged children. It initially manufactured toys in Europe but now outsources all manufacturing to companies in China to reduce costs.
Toy Story
Toy Story - analysis of the Jot case study. Adrian Sims of BPP Professional Education provides some initial analysis of the pre-seen material for the. TOPCIMA Part B - Case Study exams on February 28th and May 24th 2012. I'm writing this article in late December 2011 to help candidates prepare for the March and May 2012 T4.
Toy Story
T4 as Analysis - Free download as PDF File (.pdf), Text File (.txt) or read online for free. Toy maker Jot is part of an industry for which November and December sales are critical. Retail in Europe is facing terrible times as a consequence of the recession. Jot has a perilous cash flow position such that at December 2011 it is owed EUR4.065m by retailers.
123444732-CIMA-Case-Study.docx
5. Jot Toy uses off-shore outsourced manufacturing. Off-shoring is burdened with hidden management problems and subsequent costs that translate into headaches and sometimes nightmares for the customers of off-shoring providers. SWOT Analysis Strengths 1. Profitability Jot Toy brand which was established in the year 1998 had achieved substantial sales revenue growth for the past years.
PDF Budgeting and Performance Evaluation at the Berkshire Toy Company
at the Berkshire Toy Company Dean Crawford and Eleanor G. Henry ABSTRACT: This case1 provides an opportunity to study budgets, budget vari-ances, and performance evaluation at several levels. As a purely mechanical problem, the case asks for calculations of various price, efficiency, spending, and volume variances from a set of budgets and ...
(PDF) CIMA JOT Case Study K49B report
With Indy new toys and a more reliable testing company, JOT could avoid future problems and cost. 2. If the current testing company that JOT hires continues to make mistakes in testing prototype products, JOT could consider creating its own testing department. However, establishing a new department require much of financial capacity.
Toy Story
Toy Story - analysis of the Jot case study - CIMA EN English Deutsch Français Español Português Italiano Român Nederlands Latina Dansk Svenska Norsk Magyar Bahasa Indonesia Türkçe Suomi Latvian Lithuanian český русский български العربية Unknown
Jot Case Study
Jot - toy case study The date of the case is set at 1 November 2012 Industry background There is a large number of companies of various sizes which design and sell toys to retailers globally. Most toy companies outsource the manufacture of their toys and currently 86% of the world's toys are manufactured in China. ... The company operates ...
Jot-toy
3 A. INTRODUCTION JOT, established in 1998, is a company that produces electronic toys for Europe and the USA market. By continuing to develop new product ranges, JOT positions itself as a quality electronic toys producer in the industry. Currently, JOT has launched 5 new products each year. JOT is a young company and it has planned to expand widely in the future.
Jot: Toy Case
T4 Part B - Case Study Jot - toy case - March 2012 REPORT To: Jon Grun, Managing Director, Jot From: Management Accountant Date: 28 February 2012 Contents ... Jot is a small unlisted company which designs and outsources the manufacture of a range of children's toys. It has grown rapidly since it was established in 1998.
T4- Part B
No category T4- Part B - Case Study Jot - toy case - May 2012 REPORT Review
Jot case study
Jot case study. This is called the 'scenario. These issues may or may not have been mentioned In the case duty material. Your role Is to produce a report to the board that priorities these current issues, discusses and advises upon them. Wednesday and Thursday Groups: Each group Is to prepare the answer for the Issue specified below.
Job toy company dilemma
Download job toy company dilemma and more Job Interviewing Techniques and Skills Cheat Sheet in PDF only on Docsity! JOT Toy Company Scenario and requirement Ethical dilemma Background There is a large number of companies of various sizes which design and sell toys to retailers globally. Most toy companies outsource the manufacture of their ...
Jot Toy Company Case Study
Jot Toy Company Case Study, Cyberhomework More Login, Reflective Essay Personal Finance, How To Write A Letter To A School Board, Components Of A Business Plan For Non Profit, Popular Admission Essay Writing Websites Online, Setting Up A Co-operative Business Plan 347
Jot Toy Company Case Study
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Case Study: How an Innovative Toy Company Ensured the Safety of Its
This case study demonstrates how QIMA helped a leading toy company improve the quality of their products and adaptability of their supply chain through a comprehensive inspection, audit and lab testing program. Case Study Client Background. The client is a major European toy company sourcing over 1,000 product lines from Asia.
JOT Automation
JOT Automation | 7,098 followers on LinkedIn. Smart automation solutions for future industries. | As a world-leading custom test and assembly automation solutions provider, we create efficient ...
Case Study: Too Hot to Jot
Case Study: Too Hot to Jot. Jan 2, 2022. ... Branding was kept clean and minimal. A brief company history and message was printed on the back of the journal along with a picture of the co-owners. All artwork was designed and provided by the customer. ... Category: Case Studies; Tags: Case Study, Promotional Products, Warwick Publishing, Notepad;
JOT Automation
JOT Automation | 7.371 Follower:innen auf LinkedIn. Smart automation solutions for future industries. | As a world-leading custom test and assembly automation solutions provider, we create efficient, powerful and reliable solutions for the manufacturing of automotive, electric vehicle, consumer, telecom and industrial electronics and products. Whether you need standard products or complex ...
JOT Automation
JOT Automation | 7,355 followers on LinkedIn. Smart automation solutions for future industries. | As a world-leading custom test and assembly automation solutions provider, we create efficient, powerful and reliable solutions for the manufacturing of automotive, electric vehicle, consumer, telecom and industrial electronics and products. Whether you need standard products or complex solutions ...
Got an Idea for a Toy? Toymakers Want to Hear From You
This case was different, though: It was the first time the company had given fans a concept to work with. ... Spin Master, a toy company in Toronto, has been soliciting inventors for ideas since ...
JOT Automation
JOT Automation | 在领英上有 7,305 位关注者。Smart automation solutions for future industries. | As a world-leading custom test and assembly automation solutions provider, we create efficient, powerful and reliable solutions for the manufacturing of automotive, electric vehicle, consumer, telecom and industrial electronics and products. Whether you need standard products or complex ...

Toy Story - analysis of the Jot case study

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